For first time in years, compensation gap narrows

April 25, 2012

For the first time in four years in Michigan, the gap in compensation between public sector employees and private sector employees declined, according to research by James Hohman, fiscal policy analyst with the Mackinac Center for Public Policy.

The average compensation of public sector employees (state and local government, public schools and universities) dropped from $60,620 in 2010 to $58,400 in 2011. At the same time, private-sector workers had an increase in average compensation from $55,922 in 2010 to $56,234 in 2011.

“Throughout the decade, Michigan’s state and local government workers enjoyed robust increases in the value of their wages and benefits while the private sector fell substantially,” Hohman said. “It looks like these trends have begun reversing as the private sector average compensation increased slightly in 2011 while state and local government average compensation fell.”

Hohman said the end of federal stimulus dollars in 2011 as well as public sector early retirements that erased the highest paid government employees could explain why there was a drop in public sector compensation.

For years, private sector compensation had been well above of the public sector. That changed around 2005 when public sectors employees began earning more. From 2008 to 2011, the gap between private and public sector compensation increased.

Charles Owens, state director of the National Federation of Independent Business, said it was “unconscionable” that while private sector compensation was falling for years, taxpayers were still supporting higher pay and benefits for public sector jobs.

“These (public sector) payrolls and benefits were on an unsustainable course,” Owens said.